Little-Known EU Country Offers Tax Free Living for Foreigners
Becoming a Cyprus resident is an intriguing prospect. Not only is Cyprus one of the sunniest countries in Europe, with more than 300 days of sunshine per year. It also offers unique tax benefits.
The benefits of tax residency in Cyprus are extensive. Cyprus has kept a relatively low profile compared to more popular EU countries offering tax deals like Portugal and Spain. However Cyprus offers new residents a way to live there tax free for 17 years.
Non-Domiciled Cyprus Resident
Any foreigner becoming a Cyprus resident will almost certainly be classed as non-domiciled. Only Cyprus citizens and foreigners who’ve lived in Cyprus for more than 17 years are considered domiciled.
Everyone has a domicile of origin and a domicile of choice. Your domicile of origin is acquired at birth. So provided you don’t have Cypriot parents or grandparents you’re unlikely to have a Cypriot domicile of origin.
Domicile of choice is where you choose to make your life. Even although you choose to live in Cyprus, if you have no prior connections to the country it won’t become your domicile of choice until you’ve spent 17 years living on the island.
All residents of Cyprus are subject to tax on their worldwide income. However there are special exemptions for non-domiciled resident of Cyprus.
Dividend Income and Interest Income are Tax Free in Cyprus
Any foreigner who is a Cyprus resident for at least 60 days per year is not subject to income tax on dividends received. If you qualify as non-domiciled in Cyprus interest payments received are also not taxed in Cyprus. This includes dividends received from your own companies. That means that any income that you control can be passed through an offshore company and paid to you as a dividend. This income will not be taxed in Cyprus.
Pension Income is Taxed at a Low Rate in Cyprus
If your income comes from a pension there are special rules when you’re a foreign Cyprus resident too. Overseas pensions are subject to a flat tax of 5%. Anyone moving from a high tax country is likely to make savings on the current rate their pension is taxed at.
Overseas Employment is Not Taxed in Cyprus
Provided your employer is not a Cyprus based company all salaried income from overseas is exempt from tax in Cyprus. If you’re a Cyprus resident, working for an overseas employer for more than 90 days per year for a salary that income is not taxed in Cyprus. This also creates an opportunity to be employed by a company you control, while being tax resident in Cyprus. This income will not be taxed in Cyprus.
Other Benefits of Tax Residency in Cyprus
There’s no wealth tax or inheritance tax for residents of Cyprus. There’s no tax on sale of your home overseas either. Profit from share sales from selling a business is not taxed in Cyprus, provided the business is outside the country. Income from trusts will be tax free in Cyprus in most cases. There are also exemptions for those who work with Cyprus companies after moving to the Island.
Cyprus has double taxation agreements with 67 countries, including the US.
Residency in Cyprus
Cyprus offers residency by investment options. You can buy a property for €300,000 and get fast tracked permanent residency. You’ll only have to visit Cyprus once every 2 years to maintain it. This type of residency can be fast tracked in as little as 2 months. You can also get residency in Cyprus by proving you have a stable monthly income from a pension or investments. The amounts you need to prove are low, at only €9,568 for a single applicant and €4,613 for each dependent. There’s no need for a property purchase with this option.
Citizenship in Cyprus
Cyprus used to have a citizenship by investment program, where you could get citizenship by making a substantial investment in real estate. This program was cancelled at the end of 2020. But there are other ways to become a citizen of Cyprus.
Citizenship by naturalization is possible. After 7 years of living in Cyprus for at least 6 months a year you can apply for citizenship of Cyprus and be entitled to an EU passport.
Cyprus offers some of the best tax benefits in Europe for foreigners. Provided your affairs are structured properly before you move to Cyprus you’ll be able to protect all your income from being taxed there. You’ll also be able to enjoy one of the best climates in Europe with year round sunshine. Living costs are also amongst the lowest in Europe. Cyprus is worth considering if you’re looking for a low cost, sunny place to live tax free in Europe.